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Stock market reactions to COVID-19 and containment policies: A panel VAR approach

Author

Listed:
  • Juanjuan Zhuo

    (Kochi University)

  • Masao Kumamoto

    (Hitotsubashi University)

Abstract

This study examines how stock markets worldwide react to the ongoing COVID-19 and government containment policies measured by the Oxford COVID-19 Government Response Tracker using panel VAR model. We analyze 15 countries: the G7, BRICS, and four northern European countries, and find that the increases in confirmed cases and deaths cause more stock market volatility, though do not have significant effects on stock returns. When governments strengthen their containment policies, stock volatility rises, while stock returns decline temporarily. Next, we divide the sample period into the early and late stages of infection, and find that in the former, the increases in confirmed cases and deaths induce a rise in volatility, and the impact lasts longer. In addition, government containment policies depress stock returns significantly. Moreover, reinforcing containment policies decreases stock returns in countries that introduced stricter containment policies. However, these effects induced by government containment policies might be mitigated by economic support policies because economic support policies have positive effects on stock returns without increasing volatility.

Suggested Citation

  • Juanjuan Zhuo & Masao Kumamoto, 2020. "Stock market reactions to COVID-19 and containment policies: A panel VAR approach," Economics Bulletin, AccessEcon, vol. 40(4), pages 3296-3305.
  • Handle: RePEc:ebl:ecbull:eb-20-01157
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Klose, Jens & Tillmann, Peter, 2022. "The Real and Financial Impact of COVID-19 Around the World," VfS Annual Conference 2022 (Basel): Big Data in Economics 264030, Verein für Socialpolitik / German Economic Association.
    2. Jens Klose & Peter Tillmann, 2023. "The stock market and NO2 emissions effects of COVID‐19 around the world," Economics and Politics, Wiley Blackwell, vol. 35(2), pages 556-594, July.
    3. Famiglietti, Matthew & Leibovici, Fernando, 2022. "The impact of health and economic policies on the spread of COVID-19 and economic activity," European Economic Review, Elsevier, vol. 144(C).
    4. Nupur Moni Das & Bhabani Sankar Rout & Yashmin Khatun, 2023. "Does G7 Engross the Shock of COVID 19: An Assessment with Market Volatility?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 795-816, December.

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    More about this item

    Keywords

    COVID-19; Containment Policies; Stock Markets; Panel VAR;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • I1 - Health, Education, and Welfare - - Health

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